Although many market pundits forecast US equity ETFs to plummet and gold ETFs to surge upon the election of Donald Trump, the opposite occurred.
The S&P 500, the Dow Jones Industrial Average and the Nasdaq 100 have risen by 3.4%, 4.3% and 1.4% respectively between 8 November and 25 November 2016.
Physical gold, seen as a safe haven asset in times of turmoil, fell from $1280 per ounce on the eve of the election to $1180 on 25 November, pushing gold prices to their cheapest level since June. Gold-tracking ETFs have fallen in line with the drop in the price of the yellow metal. The $5.6bn ETF Securities Physical Gold fund (LON: PHAU) plunged more than 7% since 8 November in USD terms, for example.
Gold has faced two major hurdles recently – interest rates and the US dollar. While the 10-year US Treasury yield has risen from 1.85% to 2.3% in the last two weeks, the US dollar index has climbed almost 3.8% since election night to 101.6 by 25 November, its highest level in 14 years. The double whammy has pushed gold prices down.
As a result, since 8 November, the largest gold ETFs in the world have seen major outflows. The SPDR Gold Trust (NYSE ARCA: GLD) experienced $2.3bn in net outflows and investors pulled a net $1bn from the iShares Gold Trust (NYSE ARCA: IAU). Such large redemptions highlight what many analysts are saying – the gold market is increasingly being driven by ETF flows.
On the stocks side, the three main US equity indices – the S&P 500, the Dow Jones Industrial Average and the Nasdaq 100 – have all risen since Trump was elected, buoyed by his promises to spend more on infrastructure; as well as lower taxes and regulations.
However, the indices have not risen the same amount due to their differing index compositions and sector weights.
The surge in the financial sector – turning one of the worst-performing sectors into one of the best-performing almost overnight – has helped to lift the S&P 500 by 3.4% since 8 November.
Trump has also vowed to repeal financial reforms brought in under the 2010 Dodd-Frank Act, which limited banking activities and hindered their potential growth. Financials is the second largest weighting in the S&P 500 index at 14.7%, after technology at 20.6%.
The boost pushed the SPDR S&P 500 ETF (NYSE ARCA: SPY) back to where it was trading between September and October, but it fell short of its all-time high in August.
Despite the surge in bank stocks, some market commentators have warned that Trump’s flip-flopping – as he has done already with climate change and Obamacare – may also affect his plans regarding financial reforms.
Technology, another volatile sector, has suffered since the election amid concerns that Trump’s policies may hurt the industry, which explains the tech-focused Nasdaq’s lagging performance of a positive 1.4% over the same period. The index has 43.1% in tech stocks.
The Dow Jones replicates the performance of just 30 blue-chip companies that have been selected by a committee. Despite its arbitrary weighting scheme, it is perhaps the best known index to the lay investor. The pricing methodology is in contrast to the market capitalisation weighting scheme of the two other indices.
The Dow Jones has 20.2% invested in industrials, 17.8% in financials and a smaller amount (16.9%) in tech, and these sectors explain this index’s jump of 4.3% over the same period.